benefits of financing your purchase

By utilizing financing, investors can leverage their own investment dollars into purchasing more...

Benefits of Financing Your Purchase

Borrowing is one of many options investors can utilize to help them finance their residential real estate investment purchases. By utilizing financing, investors can leverage their own investment dollars into purchasing more properties which offers the potential for more profits for the investor's limited equity funds.

Below is an example of why it may make sense to finance your next residential investment purchase.

Equity Only

Loan

Purchase Price

$100,000

$100,000

Improvements Costs

$20,000

$20,000

Total Hard Costs

$120,000

$120,000

Capital Structure

Investor Equity

$ 120,000

$ 46,400

Loan1

$ 0

$ 80,000

Profitability

Sales Price

$160,000

$160,000

Hard Costs

$120,000

$120,000

Selling Costs

$ 16,000

$ 16,000

Loan Costs2

$ 0

$ 6,400

Total Costs

$136,000

$142,400

Profits

$ 24,000

$ 17,600

Return on Equity

20.0%

38.0%

Profit Potential on Equity3

$24,000

$45,517

Notes:1 Loan amount is based on 80% loan to cost2 Loan costs are based on a 4 month loan and equal 4.0% of sales price3 Based on opportunity to purchase 2.6 properties with investor equity